Jul 19

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Nortel bankruptcy patent auction is biggest technology patent sale ever

Nortel’s patent portfolio was recently auctioned. The final cash price is a surprisingly high $4.5 billion for around 6000 patents and patent applications. The auction process and participants are described in this article. Nortel described the package as:

… more than 6,000 patents and patent applications [covering] wireless, wireless 4G, data networking, optical, voice, Internet, service provider, semiconductors and other patents.”

Here is my take on this remarkable auction result:

  1. The auction winners need to figure out how they will get back their investment plus an investment return. Because the price is so high and the scope of the Nortel patents so broad, this transaction is likely to trigger additional patent litigation.
  2. Since the price is difficult to justify based on a purely defensive basis, many of the patents have higher value in the hands of a single owner who can exploit their value through a combination of (i) new products, and (ii) royalties from threatened litigation. To effect this, the winning consortium must have some means of dividing the more important patents among the individual members, rather than allowing (as some commentators have suggested) a broad cross-licensing arrangement for the entire portfolio. Apple’s reported $2 billion contribution would suggest that it obtained outright ownership of the 4G and LTE technology.
  3. Some patents have wider application and have already been licensed to consortium members. Consortium members that are avoiding existing royalties have a much less risky proposition, and a resulting ability to pay relatively more for their portion of the price.
  4. Although the price is breathtaking, it is still a fraction of Nortel’s reported 15-year investment in those patents of nearly $40 billion. This demonstrates that patents cannot be valued correctly using the cost approach.

About the author

David Nolte

I am a founding principal of Fulcrum Inquiry, an accounting and economic consulting firm that performs damage analysis for commercial litigation, forensic accountings, financial investigations, and business valuations. I am a Certified Public Accountant (CPA) and an Accredited Senior Appraiser (ASA), as well as having other professional credentials. I regularly serve as an expert witness involving damages measurement. My litigation-oriented resume is on Fulcrum's website.

Permanent link to this article: http://betweenthenumbers.net/2011/07/nortel-bankruptcy-patent-auction-is-biggest-technology-patent-sale-ever/

1 comment

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